Microsoft bangs final nail in Nokia Devices coffin, will lay off 1,850 people

Company will take one last £650 million hit as a result; is a Surface phone next?

The last remaining vestiges of Nokia at Microsoft are being closed down as the company "streamlines" its smartphone hardware business. "Up to 1,850" people will lose their jobs (1,350 in Finland, 500 elsewhere) as the company essentially exits the phone market.

Microsoft bought Nokia's Devices and Services business in 2013 for €5.4 billion. In July last year, Microsoft laid off 7,800 of the staff from that acquisition and took an impairment charge of $7.6 billion (£5.2 billion). The remaining feature phone portion of the business was sold off last week for £242 million. With today's announcement, the smartphone hardware business is being all but wiped out. There will be one last impairment charge of approximately $950 million (£650 million), of which $200 million (£136 million) is severance pay.

CEO Satya Nadella insists that the company is still working in the phone space, but in a much narrower way, saying "We are focusing our phone efforts where we have differentiation—with enterprises that value security, manageability and our Continuum capability, and consumers who value the same."

Should we still expect a Surface phone?

In an e-mail to staff, Terry Myerson, Executive Vice President of the Windows and Devices Group, said that the company will "be more focused" in its phone efforts, but insisted that "we're scaling back, but we're not out!" He says that the company will "develop great new devices," a statement that will continue to fuel speculation about a Windows-powered smartphone developed by the Surface team. The broad Windows strategy, and in particular the push for Universal Windows Apps, "remains unchanged," and Myerson says that the best experiences will continue to use the Microsoft "device, platform, and service combination."

His e-mail also acknowledges, however, that Microsoft will embrace other platforms, offering not just its apps but device management (through Intune) and developer tools (with the recently purchased Xamarin a key part of this) to iOS and Android users and developers.

While the decision may not come as a shock—except for anyone surprised to learn that there were more people to lay off—the move just underscores what a difficult strategic spot the company is in. Microsoft has been promising developers a single Windows platform, the Universal Windows Platform (UWP), that spans phones, tablets, PCs, Xboxes, HoloLenses, and anything and everything else that someone might want to run software on. With Windows 10, it was finally in a position to offer that platform.

But last year's layoffs and drastic scaling back of smartphone ambitions, coming just weeks before Windows 10's consumer release, undermined the entire value proposition. If one's target is the desktop market alone, then either traditional Windows apps or Web apps are sound technology choices. The full value of UWP is only apparent when a developer wants an app that can span form factors and usage models, and the smartphone in particular benefits from having native apps rather than Web apps. Without a viable phone platform, this ability to span devices becomes much less compelling.

That viability seemed within reach, too, with Windows Phone 8 breaking 10 percent market share in a number of European countries. That momentum dissipated, however, amid an uncertain corporate strategy and a failure to bring compelling phones to market, and the platform never recovered.

In spite of it all, Microsoft says that it is still seeing demand for its phone platform from the enterprise space, with corporations being attracted by UWP, Continuum, and enterprise manageability in general—and phone- and desktop-spanning apps in particular. The ability to use a Windows phone with a screen, mouse, and keyboard for enhanced productivity, a tantalising glimpse of a possible future, is also appealing to enterprises. On the management front, Microsoft is building an increasingly capable set of tools, and taken together, the result is a well-rounded enterprise offering.

With Microsoft's smartphone hardware business now "streamlined" to the point of nothingness, it's increasingly going to be up to third party manufacturers to fill the gap. The Lumia 950 and 950 XL will remain available, for the time being, and new Windows 10 Mobile devices, such as HP's enterprise-oriented Elite x3, should still come to market later this year. All of these support Continuum, with HP having a range of accessories to enhance the experience on its phone.

Team,
Last week we announced the sale of our feature phone business. Today I want to share that we are taking the additional step of streamlining our smartphone hardware business, and we anticipate this will impact up to 1,850 jobs worldwide, up to 1,350 of which are in Finland. These changes are incredibly difficult because of the impact on good people who have contributed greatly to Microsoft. Speaking on behalf of Satya and the entire Senior Leadership Team, we are committed to help each individual impacted with our support, resources, and respect.

For context, Windows 10 recently crossed 300 million monthly active devices, our Surface and Xbox customer satisfaction is at record levels, and HoloLens enthusiasts are developing incredible new experiences. Yet our phone success has been limited to companies valuing our commitment to security, manageability, and Continuum, and with consumers who value the same. Thus, we need to be more focused in our phone hardware efforts.

With this focus, our Windows strategy remains unchanged:
1. Universal apps. We have built an amazing platform, with a rich innovation roadmap ahead. Expanding the devices we reach and the capabilities for developers is our top priority.
2. We always take care of our customers, Windows phones are no exception. We will continue to update and support our current Lumia and OEM partner phones, and develop great new devices.
3. We remain steadfast in our pursuit of innovation across our Windows devices and our services to create new and delightful experiences. Our best work for customers comes from our device, platform, and service combination.

At the same time, our company will be pragmatic and embrace other mobile platforms with our productivity services, device management services, and development tools -- regardless of a person’s phone choice, we want everyone to be able to experience what Microsoft has to offer them.

With that all said… I used the words "be more focused" above. This in fact describes what we are doing (we're scaling back, but we're not out!), but at the same time I don't love it because it lacks the emotional impact of this decision. When I look back on our journey in mobility, we’ve done hard work and had great ideas, but have not always had the alignment needed across the company to make an impact. At the same time, Ars Technica recently published a long story documenting our journey to create the universal platform for our developers. The story shows the real challenges we faced, and the grit required to get it done. The story closes with this:

And as long as it has taken the company, Microsoft has still arguably achieved something that its competitors have not... It took more than two decades to get there, but Microsoft still somehow got there first.

For me, that’s what focus can deliver for us, and now we get to build on that foundation to build amazing products.